Tax Pursuit

Did City Drop Ball?

In 2009, Oakdale leaders along with officials from the City of Newman discovered a tax-sharing deal by the City of Modesto with an oil distribution company that was extracting tax dollars normally flowing toward their coffers. Both cities pursued the matter to the State Board of Equalization, but only Newman officials followed it through with appeals to finally receive back compensation. Now, Newman’s periodic share of the sales tax revenue is returned to them by Modesto.

In 2008, the City of Modesto entered into an agreement with W.H. Breshears Inc. of Modesto, an independent motor fuel company that operates several valley cardlock fueling stations, to record Modesto as the point of all local sales rather than cities where the cardlock stations were located. In return for the deal, Modesto reportedly agreed to rebate a portion of its new-found tax money to the company.

During the 1990s Sales Tax Revenue Rebates (STTR) – where a portion of acquired revenue was kicked back to a company – were being used as parts of economic development strategies in Southern California to bring in profitable business to a city. Municipalities began using them as incentives during that era’s recession to bolster local sales tax revenues.

Basically, a business agrees to do business in a city for a “rebate” of the sales tax revenue it brings in.

In response to what many perceived as a harmful tax procedure, the California State Legislature began a long inquiry in 1998 to halt the spread of STRRs, but it was not until 2009 that the state made statutory changes that effectively stopped the practice, but existing rebates are allowed to continue.

W.H. Breshears operates a cardlock station on South Yosemite Avenue in Oakdale and subsequently in the fourth quarter of 2010 the city reported it had lost over $17,000 for the quarter and nearly $60,000 that year due to the change in sales tax reporting.

In preparation for his campaign back to the council and a platform issue of creating city revenue, Farrell Jackson looked into a fight he had been involved with and believes the city failed to pursue the matter that netted the City of Newman over 60 percent of its lost share.

“Modesto went under the wire to beat the law,” said Jackson of the neighboring city’s December 2008 move with Breshears Inc. “In fact, Modesto Mayor Jim Ridenour didn’t want to do it because of the ramifications to neighboring cities. The money we were losing to Modesto could easily be applied to the cost of a police officer or firefighter.”

Jackson said when he was mayor, he and then City Manager Steve Hallam, combined with Newman Mayor Ed Kayton and City Manager Michael Holland in 2009 and 2010 and met with the State Board of Equalization.

In June 2011, the State BOE issued a formal notice that a significant percentage of the tax revenue in question was being credited to Newman because that facility had an on-duty attendant at times, but according to the city finance department there has been no word about Oakdale.

When the City of Newman received the ruling, city officials credited their ability and persistence to an issue they felt was “wrong” for the successful appeal.

Oakdale Finance Director Albert Avila said he was aware of the favorable Newman ruling because that facility was able to claim that an employee was assigned to the facility. Avila said he was not informed of any response yet from the Board of Equalization for Oakdale and believes no one followed up on it.

Jackson left the mayor’s post in November 2010 when he was defeated by Pat Paul and in April 2011, the city council fired Hallam. Other department head removals by the city have also occurred in that time.

“This is what happens when you lose good leadership in a city,” said Jackson.

“We have no staff anymore to go after this,” said Councilman Tom Dunlop about the city’s personnel reductions. “There’s no management team.”

Dunlop recalled noticing the discrepancy when his firm’s trucks, which were fueled in Oakdale, were showing the sales tax charges based outside the city.

Both Dunlop and Jackson had concerns at the time because surface road upgrades to accommodate the tractor-trailer heavy loads were made by Oakdale in the area of the fleet fueling station.

“We were making the street improvements and Modesto was getting the revenue,” said Dunlop about the Hi Tech Parkway and Yosemite Avenue intersection.

Mayor Pat Paul said the city received a “resounding no” back from the Board of Equalization because no cash changed hands in Oakdale.

“It was based on “point of sale,’” said Paul, who said she verified the state response with Interim City Manager Stan Feathers prior to returning The Leader’s message about the topic.

Paul was not aware of the Newman ruling or any subsequent appeals.

“If Farrell (Jackson) thinks this is something that should have been pursued, maybe he should have finished it when he was in office,” said Paul.

“The mayor can say what she wants,” countered Jackson. “The fact is I had left office and this was still a viable issue.”